Attorney General Ordered Enjoined from Issuing Order to Cease and Desist Filing Patent Lawsuits

Holding that a patent owner had standing to contest a cease and desist order directed to its counsel, the U.S. District Court in Nebraska has entered a preliminary injunction prohibiting the Nebraska Attorney General from enforcing that cease and desist order. Activision TV, Inc. v. Pinnacle Bancorp, Inc., No. 8:13CV215 (D. Neb. Sept. 30, 2013). The court had “previously enjoined enforcement of the cease and desist order as to this case and future federal court cases.” The only question here, therefore, was whether the Nebraska Attorney General could order the plaintiff “to cease and desist initiation of all new patent infringement enforcement efforts in Nebraska.”

The plaintiff, Activision, had sued Pinnacle Bancorp alleging patent infringement, after its counsel, Farney Daniels, sent letters to companies throughout the United States, including five in Nebraska, “asking for information to determine” if the companies were infringing Activision's patents. Six days after the lawsuit was filed, the Nebraska Attorney General entered a cease and desist order prohibiting Farney Daniels “from initiating new patent infringement enforcement actions within the State of Nebraska.” Activision moved for a preliminary injunction, arguing that it's First Amendment free-speech rights, and its Fifth and Fourteenth Amendment due process rights, were violated, “and that the Noerr-Pennington doctrine is applicable in this case.” The Attorney General responded by arguing “that Farney Daniels is not a party to this lawsuit, and thus the cease-and-desist order is not relevant to this lawsuit.”

The court began its analysis by agreeing that Activision had standing to contest the cease and desist order, and that the issue was ripe for review. Activision had “suffered an injury in fact” because Farney Daniels was unable to represent it “until the court found the cease and desist order did not apply to this case.” Settlement negotiations between Activision and defendants in Nebraska and other jurisdictions were delayed because defendants thought that “the cease and desist order prohibited them from negotiating with Farney Daniels on behalf of Activision.” Further, Activision was harmed because Farney Daniels could not “pursue further investigations on behalf of Activision in the state of Nebraska.” The court saw “no doubt that this injury is causally related to the cease and desist order and such injury is directed at Activision's activities via counsel.”

Reviewing relevant First Amendment case law, the court noted that its guarantee of “free speech encompasses the right to association.” Further, cease and desist orders have been found to amount to “an unconstitutional prior restraint on speech.”

Then turning to the familiar four-pronged preliminary injunction analysis, the court first considered Activision's likelihood of success on the merits. While the Attorney General has the power to investigate activity potentially violating state law, in this case, the Attorney General had done so “prior to the conclusion of the investigation, prior to any negative findings, prior to any hearings, and prior to permitting submission of documents and evidence by the Farney Daniels law firm.” Therefore, “the cease and desist order in this case is akin to a prior restraint.” Activision was “likely to win on the merits as there is no claim or evidence to date of bad faith.” Moreover, in the absence of a showing of a claim of bad faith, federal patent law preempted state law.

Further, Activision was suffering irreparable harm because the cease and desist order would prevent it from pursuing “cases in both Nebraska and other courts to the extent of the law.” The court noted again that cases in other jurisdictions “have already been impacted, such as the case in the Eastern District of Texas.”

Balancing the harms, while the public had “a right to protection from scams and unfair trade practices,” Activision had a “constitutional right to hire counsel of its choosing to pursue investigations and lawsuits against infringers.” Also, the court repeated its concern that federal patent law preempted much state law. The Attorney General's interference “might be harmful to the patent process.” Again noting there was no evidence of Activision's bad faith, the court found that the balance of harms weighed in Activision's favor.

Finally, the court found that the public interest, which “is served by enforcing the Constitution of the United States,” also weighed in Activision's favor.

The court therefore enjoined the Attorney General “from taking any steps to enforce the cease and desist order issued to Farney Daniels on July 18, 2013, in any manner that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of US patents owned by Activision with respect to” Nebraska companies. However, the Attorney General could revisit the preliminary injunction if his investigation at some point supported “a claim of bad faith.”